Pound Slips As Manufacturing Data Disappoints

 | May 09, 2014 07:56AM ET

The British pound continues to lose ground on Friday, as GBP/USD has dropped below the 1.69 line in the European session. After climbing over 100 points early in the week, the pound has reversed directions and surrendered most of those gains. On the release front, British Manufacturing Production dropped in April, but managed to beat the estimate. British Trade Balance improved in April as the trade deficit narrowed. Today's US highlight is JOLTS Jobs Claims. The key employment indicator has been moving higher, and the markets expect the upward trend to continue.

British Manufacturing Production, one of the most important indicators, dipped to 0.5% last month, down from 1.0% a month earlier. However, this beat the estimate of 0.3%. Earlier in the week, Manufacturing PMI came in at 57.3 points, easily beating the estimate of 55.4 points. Meanwhile, it was more of the same from the BOE, as it maintained two key components of its monetary policy on Thursday. The Bank kept its bond-purchase scheme at 375 billion pounds, where it has been pegged since July 2010. As well, interest rates remained at 0.50%, unchanged since March 2009. There has been pressure on the BOE to raise rates as the British recovery continues. Last week, the OECD raised its forecast for UK growth for 2014 from 2.4% to 3.2%. However, the BOE is in no rush to raise rates, and BOE Governor Mark Carney has insisted that no rate hikes are in the cards before 2015.

US Unemployment Claims rebounded last week, as the key indicator dipped to 319 thousand. This beat the estimate of 328 thousand. The reading follows last week's excellent Nonfarm Payrolls and Unemployment Claims, as the US employment picture appears to have brightened. If employment numbers continue to improve, we can expect the Fed to continue tapering its QE scheme.

Federal Reserve Chair Janet Yellen testified before Congress on Wednesday and Thursday, and gave a cautious thumbs-up to the economic recovery. She said that the economy has improved, but pointed to two sore spots - the job market remains weak and inflation is below the Fed's target of 2%. Yellen stated that she therefore expects that low interest rate levels will continue for a "considerable time". Yellen has stated previously that slack remains in the economy, and the Fed is expected to proceed carefully with future trims to its QE scheme. Since December, the Fed has trimmed the asset-purchase program by almost half, cutting it to $45 billion each month.

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